Now, in our final step, we offer some quick tips that can tighten your scheme budgets, while keeping your objectives in focus.
Reduce your manager roster but still earn the return
Fewer managers require less time to oversee and can improve bargaining power thanks to larger allocations. By asking your consultants to compile concentrated, high conviction lists of managers, and taking advantage of fees negotiated across their entire client base, it could be possible to reduce headline fees by 20%-30% depending on the particular asset class in question. This is particularly impactful for smaller schemes who then get access to the same fee rates as larger ones.
Negotiate on fees when you are changing consultant anyway
Changing consultant could be a great time to save on fees. Appointing a new consultant signals to your asset managers that your scheme’s allocation with them could be at risk. You should take advantage of this position and ask your new advisers to negotiate fees down on your existing mandates as a matter of course.
This can yield surprisingly powerful results. In the table below are examples of recent fee savings we achieved for two of our clients on their existing mandates during the onboarding process.
This is truly an easy win – if you don’t ask you don’t get.
Understand what you are paying for
See the full picture with a fee breakdown. Trustees need to fully understand the breakdown of the fees they pay. An asset manager’s annual management charge (AMC) usually only represents part of the total costs incurred. You should understand and appreciate the full extent of your costs, so we recommend enlisting a specialist to take a deep dive into your funds and compare them to an industry benchmark.
Know your objective and upper spending limit
Don’t aim – and pay – for 3% if you only need 0.5%. Pension schemes that need to generate higher returns to reach full funding often require more complex investment strategies and these usually incur higher fees. Having an end objective gives you clarity on the investment strategy needed, both now and in the future. Crucially, it also helps you understand and justify the resources required on your journey – and where best to spend them. Without an end objective and a clear path for getting there, years may go by without achieving any improvement in funding level with more assets used on manager and advisory fees, and transaction costs.
These may seem like small changes, but the difference in fees compounded over 10 years will have significant impact on your pension scheme’s journey to full funding and can help you get where you want to be more efficiently.